Syndication of European Buyouts and Its Effects on Target-Firm Performance

Using a unique dataset of 859 leveraged buyouts in Europe during the period 1999–2009, the authors’ recent study reports that buyout financiers syndicate their transactions to other buyers to achieve benefits that include diversification of different types of target risk, the combination of complementary investor information and skillsets, and an increase in future deal flow. The authors also report that lead financiers structure their syndicates in ways designed to minimize syndication costs, in particular potential information and incentive problems with co-investors in the syndicate, while also aiming to maximize the syndication benefits mentioned above. For example, through effective management of conflicts of interest with co-investors within their syndicates, lead financiers are likely to acquire a reputation for looking out for the interests of their co-investors that ends up increasing their own deal flow. As additional evidence in support of this claim, the authors also report finding that the post-buyout profitability and growth of the target companies are higher when buyouts are syndicated (even after adjusting for the “endogeneity” of such decisions) and when the syndicates are structured to limit inter-investor conflicts of interest within the syndicate. And as the authors point out, this finding, when viewed with the other main findings cited above, provides a more positive view of European buyout syndicates than the one projected by studies of Anglo-American syndicates to date, whose findings have emphasized the potential for collusion among the buyout financiers